India Shining to India Whining?

[kapdal]

Some time back Indian economy was the talk of the town. Recent news has been manifestly bearish.

- Rupee tumpled to record low today. 1 USD = 53.5

- Very bad news for imports, especially oil. The burden for fuel subsidy has increased by INR500bn ($10bn) due to weakening of rupee against the US dollar as India paid more for its oil imports, Oil Secretary said. He added that every time the rupee depreciates by INR1/USD, INR80bn ($1.6bn) is added to the fuel subsidy bill.

- Industrial production shrank 5.1% in October from a year earlier

- Sensex at 16000, more than 20% down on the year.

- Other bad news all around - industry whining due to no FDI in retail, health of both public and private airlines, real estate, etc..

- Inflation still very high. RBI was increasing rates to curb it. Now it has to tackle falling growth as well.

How many people invested here - real estate, stocks, funds? What's your view?

Incidentally - anecdotal evidence suggests that property prices in Delhi are still surging. That only reinforces my belief that it is a rigged market.

 

[sjakhars]

I was planning to start in MFs but the market has been like this for long time. Don't know if I should do it or not.
The one I already have are in negative and that was done before year or so.


Any advice/guidance?

 

[annch]

# On the positive side-retain/encourage FIIs?

# Similar slide is being noticed in many other emerging economies, being attributed to euro crisis and uncertainty in US debt restructuring.

# Right time to invest in Dollars? I read that INR is still over valued and may slide to INR 58 to a dollar.

Some time back Indian economy was the talk of the town. Recent news has been manifestly bearish.

- Rupee tumpled to record low today. 1 USD = 53.5

- Very bad news for imports, especially oil. The burden for fuel subsidy has increased by INR500bn ($10bn) due to weakening of rupee against the US dollar as India paid more for its oil imports, Oil Secretary said. He added that every time the rupee depreciates by INR1/USD, INR80bn ($1.6bn) is added to the fuel subsidy bill.

- Industrial production shrank 5.1% in October from a year earlier

- Sensex at 16000, more than 20% down on the year.

- Other bad news all around - industry whining due to no FDI in retail, health of both public and private airlines, real estate, etc..

- Inflation still very high. RBI was increasing rates to curb it. Now it has to tackle falling growth as well.

How many people invested here - real estate, stocks, funds? What's your view?

Incidentally - anecdotal evidence suggests that property prices in Delhi are still surging. That only reinforces my belief that it is a rigged market.

 

[kapdal]

# On the positive side-retain/encourage FIIs?

# Similar slide is being noticed in many other emerging economies, being attributed to euro crisis and uncertainty in US debt restructuring.

# Right time to invest in Dollars? I read that INR is still over valued and may slide to INR 58 to a dollar.

I agree it is a global slump. But there was also a view that since developed countries are doomed, money has to flow to emerging economies. Due to that the emerging economy currencies should appreciate. It was happening - I remember GBPINR went to 65 (it is at 83 now). That story is unravelling for India. So there is definitely India-specific gloomy factors.

India would keep growing at 6%+. That is the new hindu rate of growth. People start cheering at 8% but that is normal for the stage we are in. India should be thinking about 10%+ which is not going to happen with this type of governance.

If you have money to convert, I think it is a good level. Of course USDINR could go to 58 in the short term- there was market chatter yesterday that RBI sold 1bn USD, yet USD kept strengthening against INR. Basically, market was hell bent on hammering INR after the horrible industrial data and didn't even fear RBI. But the way I see it, after a while, INR has to appreciate as in the long run the investment flows, repatriations, exports, etc. should all lead to appreciation.

 

[kapdal]

I was planning to start in MFs but the market has been like this for long time. Don't know if I should do it or not.
The one I already have are in negative and that was done before year or so.


Any advice/guidance?

I don't follow Indian markets very closely. But based on whatever little I know, I won't invest today. Even though these levels are attractive - that is, 5 years from now I think you should make good returns on these levels. So if you are in for long run and not short term trading, maybe it makes sense.

The reason I won't do it today is that both global and Indian factors look bearish. Globally, we could soon see a default in Eurozone, US economy is surviving on printing of money, China is slowing down. Some people are even talking about breaking up of Euro or a war with Iran. No one knows how this will be managed, but you can expect chaos which lead to big losses in markets. India is going to be affected by any major global economic event. On the India front, the government has stopped working. Bureaucrats are not taking any decisions given the huge popular outcry against corruption.

It maybe a good time to convert to rupee and capture the good levels there (when India is booming, you won't get good levels for conversion). And put in some FD - Indian interest rates are going to go down in my opinion, there is too much bad news RBI can't ignore. So you can get high interest. Or you can put in some fund that is long rates (no idea if these are there in India). And when the bad news stops, you can take it into equities.

Personally, I captured a rather bad level on FX (GBPINR 73ish) and put it in a property in Delhi. But it was for personal use and not financial investment.

 

[annch]

I recently started following the financial news, so still sirfing in shallow waters, and making it as clear as mud for myself.....

So, you would suggest- make a short term killing?

I also have a question regarding your following comment-
Quote-
Incidentally - anecdotal evidence suggests that property prices in Delhi are still surging. That only reinforces my belief that it is a rigged market.

Unquote.
Correct me if I am wrong here, but Real Estate prices trend to go up with depreciating INR and resulting inflation, demand for a more stable (long term) investment. So, why do you speculate that it is a rigged market? Isn't this a short term event? Correction in inflation is soon to follow and property prices will become more realistic.

I agree it is a global slump. But there was also a view that since developed countries are doomed, money has to flow to emerging economies. Due to that the emerging economy currencies should appreciate. It was happening - I remember GBPINR went to 65 (it is at 83 now). That story is unravelling for India. So there is definitely India-specific gloomy factors.

India would keep growing at 6%+. That is the new hindu rate of growth. People start cheering at 8% but that is normal for the stage we are in. India should be thinking about 10%+ which is not going to happen with this type of governance.

If you have money to convert, I think it is a good level. Of course USDINR could go to 58 in the short term- there was market chatter yesterday that RBI sold 1bn USD, yet USD kept strengthening against INR. Basically, market was hell bent on hammering INR after the horrible industrial data and didn't even fear RBI. But the way I see it, after a while, INR has to appreciate as in the long run the investment flows, repatriations, exports, etc. should all lead to appreciation.

 

[singhvp]

Apart from the fall in industrial growth by 5.1 % and the projected growth rate, the political paralysis of the government on the FDI issue has also taken its toll on the value of Rupee. The opposition’s sabotage on the issue of FDI has sent a wrong signal to the FIIs. Moreover, USA, which has been traditionally the biggest investor in the global market, has itself become host of FDI. The other Asian markets like China and Malaysia have been alluring the investors by making the business climate more congenial in comparison to Indian markets – thanks to more authoritarianism in governance there. In wake of the forecast of increased inflation rate in the foreseeable future, even the NRIs have started holding back their remittances to India. The downside spiral of the Rupee is, therefore, a cumulative effect of so many economic factors. But, the Rupee is going to stabilize at 56/1US soon. RBI and the Ministry of Finance are working overtime and cannot afford to let the present slide down continue unabated. It is a temporary phase and there seems to be no reason to be pessimistic. In fact Rupee should have reached 60/- had the government not stopped its pace by artificial measures over the years. It has been stagnant against dollar for more than 4-5 years, perhaps, which was against the fundamentals of currency market and free market economy. It has, however, come as a bonanza for our NRIs getting pay/dividends in USD.

 

[sjakhars]

Thanks Kapil Ji. This is what exactly kept me waiting for some time. I am not able to assure myself that the economic scenario will improve in near future. The Euro-zone crisis, Indian growth rate, political chaos (local and international), all are giving enough signals not to get into the markets now, even MFs.
The fears are actually getting more and more clearer day by day, let's how the future unfolds. At the moment, as you suggested FD and real estate may be good options.

I don't follow Indian markets very closely. But based on whatever little I know, I won't invest today. Even though these levels are attractive - that is, 5 years from now I think you should make good returns on these levels. So if you are in for long run and not short term trading, maybe it makes sense.

The reason I won't do it today is that both global and Indian factors look bearish. Globally, we could soon see a default in Eurozone, US economy is surviving on printing of money, China is slowing down. Some people are even talking about breaking up of Euro or a war with Iran. No one knows how this will be managed, but you can expect chaos which lead to big losses in markets. India is going to be affected by any major global economic event. On the India front, the government has stopped working. Bureaucrats are not taking any decisions given the huge popular outcry against corruption.

It maybe a good time to convert to rupee and capture the good levels there (when India is booming, you won't get good levels for conversion). And put in some FD - Indian interest rates are going to go down in my opinion, there is too much bad news RBI can't ignore. So you can get high interest. Or you can put in some fund that is long rates (no idea if these are there in India). And when the bad news stops, you can take it into equities.

Personally, I captured a rather bad level on FX (GBPINR 73ish) and put it in a property in Delhi. But it was for personal use and not financial investment.

 

[kapdal]

I recently started following the financial news, so still sirfing in shallow waters, and making it as clear as mud for myself.....

So, you would suggest- make a short term killing?

I also have a question regarding your following comment-
Quote-
Incidentally - anecdotal evidence suggests that property prices in Delhi are still surging. That only reinforces my belief that it is a rigged market.

Unquote.
Correct me if I am wrong here, but Real Estate prices trend to go up with depreciating INR and resulting inflation, demand for a more stable (long term) investment. So, why do you speculate that it is a rigged market? Isn't this a short term event? Correction in inflation is soon to follow and property prices will become more realistic.

Didn't understand what short term killing you are referring to? But I won't be able to recommend any short term killing. I am by nature quite careful (or lazy) when it comes to investments. Though my day job has been always been dealing in markets, I have never invested anything till date in markets. [Apart from "personal use"]. I also think there are usually no obvious short term killings, especially for retail investors. You have to be very plugged into the system to know what is going on- that is difficult as sometimes even people working in markets are clueless.

I don't think there is that link between inflation and real estate as you suggested. You need to go into the underlying reasons for inflation and also type of inflation. Rise in property & equity values is asset price inflation. Rise in prices of food and consumables can come from supply bottlenecks (very true for India) as well as increasing demand. The supply side is affected when rupee depreciates making imports more expensive (this inflation is coming from "bad" reasons) - but that may not lead to asset price inflation. Indeed, it should not if the economic conditions are bad and no one is investing. You can see it in the primary market where the real estate developers are trying to give discounts to sell. Secondary market is rigged because price appreciation happens with very few transactions. If you go to Dwarka, the same flat is with 10 brokers and they keep jacking the price up by saying "iske to itne lag liye". The new supply is hoarded by financers who work with the brokers.

On the other hand, if India is growing, lots of money is flowing into India for investment, Rupee is going to appreciate (As it did till August this year- you sell USD and buy INR to put them in India), you'd have inflation (higher demand) and you'd also have property prices going up. The reason for inflation is "good" here although inflation itself may be bad.

 

[ssgoyat]

But based on whatever little I know, I won't invest today. Even though these levels are attractive - that is, 5 years from now I think you should make good returns on these levels. So if you are in for long run and not short term trading, maybe it makes sense.

The reason I won't do it today is that both global and Indian factors look bearish.
.

Thanks Kapil Ji. This is what exactly kept me waiting for some time. I am not able to assure myself that the economic scenario will improve in near future. The Euro-zone crisis, Indian growth rate, political chaos (local and international), all are giving enough signals not to get into the markets now, even MFs.
The fears are actually getting more and more clearer day by day, let's how the future unfolds. At the moment, as you suggested FD and real estate may be good options.

The scene is unclear now, just hold on, wait n watch for a while.... coz

Bulls Make Money, Bears Make Money, Pigs Get Slaughtered...

 

[annch]

Thank you for adding clarity to my muddled thoughts. Really appreciate your feedback.

For a prospective/aspiring retail investor like me, short term killing was just in selling dollars for INR, which financially would be probably inappropriate to say as short term killing? I am too conservative, not yet ready or too eager to invest in RE, but eyeing gold....for a long term of course..

Didn't understand what short term killing you are referring to? But I won't be able to recommend any short term killing. I am by nature quite careful (or lazy) when it comes to investments. Though my day job has been always been dealing in markets, I have never invested anything till date in markets. [Apart from "personal use"]. I also think there are usually no obvious short term killings, especially for retail investors. You have to be very plugged into the system to know what is going on- that is difficult as sometimes even people working in markets are clueless.

I don't think there is that link between inflation and real estate as you suggested. You need to go into the underlying reasons for inflation and also type of inflation. Rise in property & equity values is asset price inflation. Rise in prices of food and consumables can come from supply bottlenecks (very true for India) as well as increasing demand. The supply side is affected when rupee depreciates making imports more expensive (this inflation is coming from "bad" reasons) - but that may not lead to asset price inflation. Indeed, it should not if the economic conditions are bad and no one is investing. You can see it in the primary market where the real estate developers are trying to give discounts to sell. Secondary market is rigged because price appreciation happens with very few transactions. If you go to Dwarka, the same flat is with 10 brokers and they keep jacking the price up by saying "iske to itne lag liye". The new supply is hoarded by financers who work with the brokers.

On the other hand, if India is growing, lots of money is flowing into India for investment, Rupee is going to appreciate (As it did till August this year- you sell USD and buy INR to put them in India), you'd have inflation (higher demand) and you'd also have property prices going up. The reason for inflation is "good" here although inflation itself may be bad.

 

[annch]

Not to derail the main discussion, there are also UPA-RBI conspiracy stories doing the rounds that INR devaluation is deliberate and orchestrated.....

 

[kapdal]

Thank you for adding clarity to my muddled thoughts. Really appreciate your feedback.

For a prospective/aspiring retail investor like me, short term killing was just in selling dollars for INR, which financially would be probably inappropriate to say as short term killing? I am too conservative, not yet ready or too eager to invest in RE, but eyeing gold....for a long term of course..

Selling USD for INR at these levels would be "opportunistic locking" for an NRI that has assets in USD (cash flow stream from job) and liabilities in Rupees (family responsibilities, long term settlement plan). I have myself done this "locking in" at much worse levels - but of course I had no way of knowing then that rupee would tank like this, I was actually fearing it appreciating more.

 

[virj]

# On the positive side-retain/encourage FIIs?

# Right time to invest in Dollars? I read that INR is still over valued and may slide to INR 58 to a dollar.

No I dont think so. Emerging groups are trying to find the alternative already. Some even started trading in local currencies. Better invest in Gold when it is not red hot or commodity currency like $ AUD. US should slump in future relatively looking at the indicators.


If you can get good rate in gold or $AUD you should lock it as in near future interest rate in AUS may go up which will make AUD even stronger.

$INR doesnt get traded directly in the markets its value depend on many other indirect factors mostly local.





P.S :: Act on the above advise at your own risk.

 

[vicky84]

On the other hand, if India is growing, lots of money is flowing into India for investment, Rupee is going to appreciate (As it did till August this year- you sell USD and buy INR to put them in India), you'd have inflation (higher demand) and you'd also have property prices going up. The reason for inflation is "good" here although inflation itself may be bad.

Kapil, I think rise in property prices should match with rising income. But the trend is not like that. Yes people in India have enjoyed the pay rises after sixth pay commission but still the affordability is not there. Specially when we talk about the property in NCR. With average income it is very hard to buy a property. However it is easier to rent. But I just do not understand the trend. Property is keep on going up and this bubble could burst in future.

 

[annch]

I hear the "opportunity knocking"....thank you..

Selling USD for INR at these levels would be "opportunistic locking" for an NRI that has assets in USD (cash flow stream from job) and liabilities in Rupees (family responsibilities, long term settlement plan). I have myself done this "locking in" at much worse levels - but of course I had no way of knowing then that rupee would tank like this, I was actually fearing it appreciating more.

 

[annch]

Thank you Vipin ji for the tip....

No I dont think so. Emerging groups are trying to find the alternative already. Some even started trading in local currencies. Better invest in Gold when it is not red hot or commodity currency like $ AUD. US should slump in future relatively looking at the indicators.


If you can get good rate in gold or $AUD you should lock it as in near future interest rate in AUS may go up which will make AUD even stronger.

$INR doesnt get traded directly in the markets its value depend on many other indirect factors mostly local.





P.S :: Act on the above advise at your own risk.

 

[kapdal]

Kapil, I think rise in property prices should match with rising income. But the trend is not like that. Yes people in India have enjoyed the pay rises after sixth pay commission but still the affordability is not there. Specially when we talk about the property in NCR. With average income it is very hard to buy a property. However it is easier to rent. But I just do not understand the trend. Property is keep on going up and this bubble could burst in future.

Completely agree with you Atish. I was talking more in general economic terms in the bit you quoted, rather than Indian specific reasons.

I said earlier that the Indian property market looks rigged to me. I just don't understand how many people have the sort of money to buy these properties worth 1 crore+ in India. If it is very few people hoarding all the properties and everyone else renting, it is a new form of feudalism. It would be good if such a bubble bursts leading to price correction [not good for me personally, but good in general], however I really doubt it. The loan to value ratios in India are really low given that the white component is hardly more than 60% and you get max. 80% of the white component as loan. Also, Indian mindset refuses to sell below the price you purchased it at even if it means holding on to the property (and foregoing returns you could have made elsewhere) for no gains for ever.

 

[kapdal]

The downside spiral of the Rupee is, therefore, a cumulative effect of so many economic factors. But, the Rupee is going to stabilize at 56/1US soon. RBI and the Ministry of Finance are working overtime and cannot afford to let the present slide down continue unabated. It is a temporary phase and there seems to be no reason to be pessimistic. In fact Rupee should have reached 60/- had the government not stopped its pace by artificial measures over the years. It has been stagnant against dollar for more than 4-5 years, perhaps, which was against the fundamentals of currency market and free market economy. It has, however, come as a bonanza for our NRIs getting pay/dividends in USD.

Sir, I think the natural trend has actually been opposite. That is of Rupee appreciating against USD and other developed market currencies. RBI in recent history usually used to intervene to stop Rupee from appreciating too much so that our exports remain competitive. That is one reason for India's increasing forex reserves as RBI stops Rupee appreciation by buying USD and selling Rupee. This price action and RBI selling USD is actually quite an anomaly for recent times.

 

[singhvp]

Selling USD for INR at these levels would be "opportunistic locking" for an NRI that has assets in USD (cash flow stream from job) and liabilities in Rupees (family responsibilities, long term settlement plan). I have myself done this "locking in" at much worse levels - but of course I had no way of knowing then that rupee would tank like this, I was actually fearing it appreciating more.

Kapil, a certain degree of volatility will always remain there in the currency market. Only last month I was very happy to convert a substantial amount of USD @ INR 48.16 through banking channel. But, in the hindsight it was a mistake. Therefore, the question remains as to how far one can hold one's liquid money. But, there is a positive side also. I invested that money in some property which has escalated at faster rate in comparison to the liquid property. So, there are lows and highs both in this business.